The Regional Director, E.S.I. Corporation vs Skiltek Engineers

N. Paul Vasanthakumar, J.—This Civil Miscellaneous Appeal is filed by the Regional Director, Employees State Insurance Corporation,

Madras, challenging the order dated 12.11.1999 made in ESI.O.P. No. 71 of 1990.

The respondent herein filed ESI.O.P. No. 71 of 1990 u/s 75 of the Employees State Insurance Act, 1948, to set aside the order dated

30.5.1990 declaring that the respondent establishment is not covered under Employees State Insurance Act, 1948, for the period from 9.3.1989

to 8.3.1990 on the ground that the respondent establishment is engaged in the business of manufacturing certain industrial products, having a small

unit with seven employees to work regularly and at times one or two casual employees be engaged and at no point of time ten or more persons

were engaged.

On 9.3.1989, the Inspector of ESI Corporation visited the respondent establishment and verified the records, pursuant to which a

communication was issued on 3.4.1989 stating that the respondent establishment is covered under the Employees State Insurance Act, 1948, from

9.3.1989 and on the basis of the said inspection report C-18 notice dated 21.3.1990 was issued to the respondent establishment to show cause as

to why contribution should not be determined at Rs. 8,421.60 from March, 1989 to February, 1990 and orders u/s 45A should not be passed

calculating at 7.25% and the assumed wages of Rs. 880/- per month per employee. The respondent establishment sent a reply on 7.5.1990

disputing the coverage. Respondent''s representative appeared before the appellant on 11.5.1990 and explained in person that the respondent

establishment is not covered under the Employees State Insurance Act, 1948. In spite of the same, on 30.5.1990, an order was passed u/s 45A

for Rs. 8,204/- towards contribution from 9.3.1989 to 8.3.1990 with 12% interest and the same was directed to be paid within 15 days. The

grievance of the respondent establishment was that without serving the inspection report, which is the basis for issuing the show cause notice, the

coverage of the respondent establishment under the Employees State Insurance Act, 1948, was passed.

The E.S.I. Court framed the following issues:

(a) Whether the respondent establishment is not covered under the ESI Act for the period from 9.3.1989 to 8.3.1990?

(b) Whether the order passed u/s 45A on 30.5.1990 directing the respondents to contribute Rs. 8,294/- is illegal or not?

The E.S.I. Court considered the defence of the respondent establishment that at any point of time more than seven persons were not employed

in the respondent establishment. One Murali was examined as PW-1 and one Tamilmani was examined as PW-2. Their evidence was that after the

inspection of the establishment, copy of the inspection report was not sent to the establishment. The said Murali also submitted that two persons

viz., Veeraraghavan and Purushothaman, who were found at the time of inspection, were not engaged by the respondent establishment and the said

Veeraraghavan was working in some other company. One Dayalan and Murali were engaged casually on that particular day and the attendance

register which was marked as Ex. A-7 contained only seven persons'' name who were employed in the company. RW-1 who was the Assistant

Director of the ESI Corporation deposed that on 9.3.1989 he inspected the premises and found that the establishment was manufacturing

automobile components and he found 11 persons were working and he submitted a report Ex. R-1.

The E.S.I. Court found that the said Veeraraghavan and Purushothaman were employees of Insap Flexibles and Engineers Private Limited and

Murugan Industries and they are not employees of the respondent establishment. The ESI Court also found that during the inspection, attendance

register and wage register were verified, but still the Inspector who was examined as RW-1 submitted Ex. R-1 report on presumption without

proper enquiry. The Inspector also failed to note the salary paid to other persons beyond seven in his inspection report and therefore allowed the

appeal filed by the respondent herein.

In this appeal even though the following three questions of law were raised,

(1) Whether the finding of the Lower Court that the respondent establishment was not coverable, can be sustained in law?

(2) Whether the determination of contribution on notional wages is wrong when the respondent did not produce the necessary records?

(3) Whether the order of the Lower Court is not liable to be set aside on anyone or more of the grounds thereof?

I am of the view that the same are only questions of fact which are already answered by the E.S.I. Court and there is no clinching evidence to

show that more than seven persons were employed in the respondent establishment on the date of inspection.

Section 45A of the ESI Act clearly states that no order shall be passed by the Corporation unless the principal or immediate employer or the

person in charge of the factory or establishment has been given a reasonable opportunity of being heard.

Admittedly the inspection report which was used as basis for issue of show cause notice was not served by the E.S.I. Corporation. In the

decision reported in 1982 Lab. I.C. 1787 Regional Provident Fund Commissioner, Employees'' Provident Fund, New Delhi and Anr. v. Glamour-

Proprietor Seth Hassaram and Sons (India) Pvt. Ltd., New Delhi and Ors. a Division Bench of the Delhi High Court held that the inspection report

is bound to be given to comply with the principles of natural justice. In the decision reported in Chandra Bhavan Boarding and Lodging, Bangalore

Vs. The State of Mysore and Another, it is held that dividing line between the administrative power and quasi-judicial power is quite thin and the

principles of natural justice apply to the exercise of the administrative power as well. Even though the order passed u/s 45A of the Employees

State Insurance Act, 1948, is on the basis of best assessment, in view of the provisions contained in Section 45A(1), the report copy shall be

furnished.

It is not the case of the appellant that the respondent establishment has not co-operated. In the absence of co-operation from the establishment

only best assessment order u/s 45A can be passed unilaterally. The respondent establishment cannot be treated as non-cooperative since they

have produced attendance register and wage register. Still the Inspector presumed the payment of wages to persons other than seven employees

and taking note of the said facts also ESI Court set aside the same. In the decision reported in E.S.I.C. Vs. C.C. Santhakumar, , in paragraph 15,

the Honourable Supreme Court explained the position by stating that unilateral order of best assessment can be passed u/s 45A, only if there is no

co-operation from the establishment and the said amount determined can be recovered as arrears of land revenue u/s 45B of the Act.

Hence I am of the view that the mandatory requirement under proviso to Section 45A(1) was not followed and the respondent establishment

was denied of reasonable opportunity of being heard before covering the respondent establishment under the Employees State Insurance Act,

1948.

There is no merit in the Civil Miscellaneous Appeal and the same is dismissed. No costs.